When a company receives a Creditor’s Statutory Demand for Payment of Debt (Statutory Demand) which is perhaps defective or the subject of a dispute, it is often possible to apply to the Court for orders that the Statutory Demand be set aside.

There is invariably little time to prepare, file and serve such applications, given the strict time limit of 21 days to do so imposed by s 459G of the Corporations Act 2001 (Cth) (the Act).

Pursuant to s 459G, both the Originating Process and Affidavit in Support of the application (Application Documents) must be filed with the Court and sealed copies served on the purported creditor before the end of the time limit.  If service is not effected in time, then the application is doomed to fail.

But what happens when the Application Documents must be served interstate?

One common mistake that continues to trip up companies who have received a Statutory Demand during what is generally a frantic period is the (intermittent) requirement to comply with the provisions of the Service and Execution of Process Act 1992 (Cth) (SEPA).

The SEPA is the piece of federal legislation that allows for documents which have been issued by a Court in a particular state to be served on a party in another state. With Australian businesses dealing frequently with suppliers and other trade partners across state borders, it is necessary for there to be a simple mechanism which allows for interstate service of Court process. In fact, compliance with the requirements of the SEPA (which generally involves adding a short notice to the front of your documents) is actually quite simple, if you remember to do it!

A cautionary tale can be found in the decision of Justice Black of the Supreme Court of New South Wales in In the matter of 8D Pty Ltd [2013] NSWSC 1297.

In that case, 8D (a company based in QLD) had received a Statutory Demand from DMH (another company based on QLD). For reasons unknown (which presumably continue to haunt 8D) it commenced a proceeding to set aside the Statutory Demand in the Supreme Court of New South Wales.

After being dutifully filed, the Application Documents were comprehensively served on DMH in the following ways: –

1. by facsimile to DMH’s solicitors;
2. by email to DMH solicitors; and
3. by courier to the address for service of DMH (i.e. its solicitors) provided on the Statutory Demand.

All within the 21 day time limit for service. All in QLD.

There was no doubt in anyone’s mind that DMH’s solicitors and most likely DMH itself had been given notice of the application to set aside the Statutory Demand. There was just one problem, 8D’s solicitors had failed to comply with the requirements of the SEPA which had been enlivened because the Application Documents had been issued by a NSW Court.

On becoming aware of the error, 8D’s solicitors immediately sent a further letter to DMH’s solicitors enclosing the Application Documents, this time including the all important extra form in compliance with the requirements of the SEPA (SEPA Notice).  Unfortunately for 8D, by that time it was too late as the 21 day time limit had already expired.

At the hearing, 8D’s barrister crafted an argument which was described as ingenious by His Honour Black J, as to why the informal service of the Application Documents (i.e. the service without the SEPA Notice) when combined with the late formal service (i.e. the service with the SEPA Notice) amounted to a satisfaction of the requirements of service under the common law, thus rendering the service of the Application Documents effective.  Alas, ingenious though the argument may have been, Black J found that where the Court’s jurisdiction (to hear the application) was not invoked by effective service within the 21 day time limit, it could not be subsequently invoked by late service which otherwise complied with the requirements of the SEPA.

In the circumstances, given that the Application Documents had not been served effectively within the 21 day time limit prescribed by s 459G, 8D’s application was dismissed and the Statutory Demand remained in force.

What should be taken away from this case?

The case illustrates the need for extreme caution when it comes to ensuring that the particular requirements of service of any application to set aside a Statutory Demand have been complied with and that such compliance occurs within the strict 21 day time limit prescribed by  s 459G. The issue in this case was that 8D’s Originating Process was filed in the Supreme Court of New South Wales. For that reason, unless service of those documents was to be effected within New South Wales, then the requirements of the SEPA needed to be taken into account when serving the documents on DMH in Queensland. They were not, and the application failed.

If 8D had filed its application more predictably in the Supreme Court of Queensland, or even in the Federal Court of Australia in the registry of any state, it would not have enlivened the operation of the SEPA.

Of course, for all the fuss, we still do not know whether 8D’s application to set aside DMH’s Statutory Demand would have been successful.  Unfortunately, as a consequence of the ineffective service of its Application Documents, we never will.

For more information about Statutory Demands, the SEPA and the information in this article, please contact ERA Legal.